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Will low oil prices and the contradictions of empire foil Stephen Harper’s plans?

In a not-terribly-surprising move last week, Canadian Prime Minister Stephen Harper reversed previous pledges to inaugurate new emissions regulations for the oil-and-gas industry. Rising in the House of Commons to rationalize the decision, Harper stated that to impose “unilateral” regulations on that sector at a time of low oil prices would be “crazy economic policy.”

Harper leads the same regime that, in 2012, introduced a raft of environmental deregulation through two omnibus bills, C-38 and C-45, which (among other noteworthy impacts) severely abridged the environmental assessment process required for certain industrial projects, officially withdrew Canada from the Kyoto Protocol, constrained the ambit of protection under the Fisheries Act, and annulled the protected status of many of Canada’s navigable waterways. It is reasonable to infer that these alterations were made with the economic interests of extractive industry in mind.

In other words, the Harper government’s view is that “cutting red tape” is prudent regardless of the price of oil, while introducing new regulations ranges from non-urgent at a time of high oil prices, to unhinged at a time of low oil prices. (A national carbon tax, of course, remains a non-starter.) Thus, the balance of probabilities suggests that the Harper government will remain a spectator in the campaign against climate change and ecological degradation—if not an antagonist.

From a climate perspective, the implications of a low market valuation for oil are mixed. Harper is correct in asserting that the profitability of the Alberta oil sands industry will suffer, and this is likely to entail a slowdown in extraction at one of the world’s most pollution-intensive industrial projects. On the other hand, a lower cost of oil could also yield increased consumption of petroleum products, including gasoline, throughout the global economy—and undermine the Pigovian effect of a carbon tax and/or cap-and-trade schemes.

As is always the case with rapid and sizable fluctuations in the price of a commodity, many variables are involved, including the demand-side factors of economic slowdown in China, ongoing economic stagnation in Europe, and the amplifying effect created by commodity traders as they shift from oil futures to short-selling. But in this case, there is a particularly important supply-side factor at play too: namely, a recent decision by Saudi Arabia to maintain high production and reduce prices. Several considerations may have induced the Kingdom to do this, and its Sunni OPEC allies in turn to cooperate.

The shale oil, oil sands, and fracking booms in North America, which threaten to establish the U.S. as the world’s leading producer of petroleum. Saudi Arabia’s monarchy would like to regain the Kingdom’s dominant position in the world oil market by rendering uneconomic extractive projects from unconventional oil deposits—like the ones driving the North American surge.

A move of this sort is not unprecedented. In 1973, in response to the Yom Kippur War, the Saudi regime and its Arab OPEC allies deployed the “oil weapon”, scaling back production in order to penalize the U.S. government for its support of Israel. This decision was one of the factors that precipitated a long period of “stagflation” in the U.S. and other countries, along with an oil scare and fuel shortages.

Iran, a country regarded by the Saudi monarchy as a regional rival, has been plagued by economic difficulties for years due to Western sanctions over its nuclear program—despite the fact Iran is a party to the UN Non-Proliferation Treaty, and thus technically has the right to enrich uranium for non-violent purposes. OPEC member states Saudi Arabia, the United Arab Emirates, and Qatar, which are not subject to Western sanctions, can balance their domestic budgets at a lower oil price than can Iran—which would like to see the price of oil rise to well over $100 USD per barrel. This disparity has been the source of discord within OPEC.

The anti-ISIS fight, in which Saudi Arabia has allied itself with the U.S.-led coalition that seeks to topple that extremist organization. There are at least two reasons why the Kingdom is cooperating in the campaign against ISIS: first, because that group has directly challenged the Saudi monarchy for religious supremacy in the region by declaring itself an Islamic Caliphate; and second, because the Saudi leaders may have struck a quid-pro-quo agreement with Washington.

ISIS has managed to consolidate its lucre and power, in part, by capturing oil and gas wells in eastern Syria, and selling those commodities on the black market. By depressing the price of oil, Saudi Arabia and its Western allies hope to undermine ISIS’ revenue stream.

A back-room deal with U.S. Secretary of State John Kerry?

According to Guardian economics editor Larry Elliott (and other sources corroborate his reporting), the Saudi monarchy may have brokered a deal with the U.S. government to sell crude oil at prices below the prevailing market rate. Both countries intend to deploy the oil weapon against ISIS and Iran. The U.S. government has its own sights set on Russia.

The insubordination of the Kremlin, under the steely hand of a former KGB officer and maven of Realpolitik, is a reaction to the eastward expansion of NATO since the fall of the Berlin Wall. When the U.S. supported a putsch last April against the duly elected (if corrupt, authoritarian, and unlikeable) Ukrainian president Viktor Yanukovich, Putin decided the Western military alliance had ventured a bridge too far.

Russia’s annexation of the Crimea bears testament to the strategic and military importance of that peninsula to the Putin regime; it remains, after all, the home of Russia’s Black Sea fleet, and one of few permanently ice-free ports to which the country has access. Ukraine’s bloody civil war, which has already claimed the lives of thousands of civilians and led many more to flee, was precipitated by Western meddling in Ukraine’s affairs. Russian soldiers and armaments have flowed over the border into Donetsk, Luhansk, and the Donbass regions of Ukraine, but the battle is dominated by Ukrainian citizens, both Russian-speaking and Ukrainian-speaking, many of whom had never seen a day of combat before violence erupted last year.

The Obama administration would like to bring Putin to heel. Hydrocarbon exports are the lynchpin of Russia’s economy. Sanctions against the regime, thus far, have proven ineffective. A ground invasion of a country abundant in nuclear weapons is too foolhardy a gambit to even contemplate.

Having weighed all these considerations, the U.S. government may well have calculated that a tactical manoeuvre to reduce the price of oil, and thereby hamper Russia’s prosperity—even at the risk of harming the domestic shale oil sector—is worth attempting.

In the sheer bombast and abrasiveness of their rhetoric, Harper and his foreign minister, John Baird, frequently outstrip their American counterparts—as if to convey the illusion of leadership. The general thrust of the foreign policies of the two countries are nearly indistinguishable; to be on the right side of history means, in the Harper regime’s estimation, to be on Washington’s side of history. At this particular juncture, however, the diktats of Washington have placed the Canadian prime minister in a quandary.

Boosterism on behalf of the Alberta oil sands (the crux of his political base) is the indispensable domestic priority of the Harper administration. But as the price of oil tumbles, a stark conflict has emerged between Harper’s main foreign and domestic objectives, with profound political and economic implications. Despite Harper’s assurances that reduced oil revenues will not threaten the vaunted federal fiscal surplus, one of Canada’s major banks has predicted that the total loss (both federal and provincial) could reach $13 billion—enough to jeopardize what remains of the surplus, and by extension, the political promises that accompany it. Might income-splitting go back on the chopping block? Might we see a return to austerity—or a further fall in the Canadian dollar? Where will the price of oil bottom out?

The answers to these questions remain moot. What is clear, however, is that Harper’s grand designs are mired in uncertainty.